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Global rating agencies Fitch and Moody’s downgraded South Africa’s sovereign credit rating further to junk on Friday night, citing a combination of SA’s weakening fiscal position, rising public debt and the economic impact from the Covid-19 pandemic.
One piece of good news was that the third largest global credit rating agency, S&P, decided to keep SA’s sovereign credit rating assessment unchanged.
In an announcement late Friday, Fitch said it had downgraded SA’s long-term foreign currency debt to ‘BB-‘ from ‘BB’, with a negative outlook.
‘BB-‘ is the third notch of the degree of underinvestment or ‘junk’ according to Fitch’s rating hierarchy.
“The pandemic has severely affected South Africa’s economic growth and GDP is expected to remain below 2019 levels even into 2022,” Fitch said in a statement.
“A particularly tight lockdown in the second quarter, combined with the broader global and national consequences of the pandemic, caused a sharp drop in production, but GDP had already contracted in quarter-on-quarter terms since 3Q19.”
Meanwhile, Moody’s said that the economic impact of the pandemic has worsened South Africa’s debt burden while also intensifying the country’s economic challenges and social obstacles to economic reforms.
The group changed its assessment of long-term foreign and local currency issuer ratings from SA to Ba2 from Ba1, with a negative outlook. Ba2 is the second rung of the garbage, according to the group’s credit rating scale.
No change for S&P
Also on Friday night, S&P decided to keep SA’s sovereign credit rating assessment unchanged.
The group affirmed its long-term foreign currency rating for SA at ‘BB-‘ and its long-term local currency rating at ‘BB’, both with a stable outlook.
S&P said that while the lockdowns associated with fighting the Covid-19 pandemic had plunged South Africa into its “sharpest quarterly economic contraction” in the second quarter of the year, it expects a return to positive annual growth alongside slow consolidation. fiscal in 2021-2023.
